Asset Classes You Should Consider for a Truly Diversified Portfolio

The foremost investment advice anybody gives you is to diversify your investments towards different asset classes. A right asset mix must be based on your risk appetite, age, and financial goals. 

The primary asset classes one can look at are equity funds, debt funds, cash, and gold. However, you are the best person to decide how you diversify your investments into these asset classes based on your financial plan.

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Let us look at each of these asset classes and find out what kind of investors must pick them up.

• Equity Funds
  Investors with an investment horizon of five years or more can invest in equity funds and gain higher returns. You can save on income tax under Section 80C of the Income Tax Act, 1961 if you spend in the equity-linked saving schemes (ELSS). You can diversify your investments towards different equity funds to balance risk and returns. That is some experts suggest to invest in large-cap funds that are equity shares from large companies, while the others may advise you to pick equity shares from companies that have a track record of offering stable returns over the years.

• Debt Funds
  Debt funds are the appropriate investment product for those investors who are risk-averse and do not want to invest in the equities. Debt funds come with little to no risk. The ideal time horizon for investment in this asset class is one to three years, which is considered a short-to-medium term. Usually, short-term investors choose liquid funds to park money as they offer best-in-class returns along with easy access to funds whenever required. Dynamic bond funds can be another ideal option.

• Cash
  Cash, here, need not only mean literal money; it can be any liquid investment you have made that can be accessed immediately. Those who are looking to protect their investment capital rather than daring to withstand the market volatility can invest in small saving schemes, such as public provident funds, voluntary provident funds, fixed deposits, recurring deposits, and national saving scheme. The returns are guaranteed with these schemes, and you can trust them as they are government-backed. Some of these schemes also offer income tax exemptions, which is another plus.

• Gold
  The performance of gold as an investment has been consistent over the previous year. The yellow metal has stayed in the lifetime high position with the current value being Rs.4,915 per gram. Industry experts state that the yellow metal can sustain market volatility and has proved to perform better than equities and debt funds during the times of global recession. You can save your investments from pitfall by allocating a small portion of your investments towards gold.

Based on your preferences, risk appetite, financial goals, and the time remaining to achieve them, you must carefully choose the right asset classes along in the right proportion. You are, then, definite to achieve your financial goals. Also, reconsider your portfolio distribution once in a while and make the necessary adjustments to have a smooth sail.

For any clarifications/feedback on the topic, please contact the writer at apoorva.n@cleartax.in